DCT® Featured in Denver Business Journal: DCT Industrial CEO: Here’s why we sold our company to Prologis for $8.4B

August 14, 2018

An Article on Denver Business Journal by Kelcey McClung

DCT Industrial CEO: Here's why we sold our company to Prologis for $8.4B

Hard, bittersweet, emotional.

These are the words DCT Industrial Trust CEO, Phil Hawkins, used to describe San-Francisco based Prologis' purchase of the company for $8.4 billion.

The acquisition of the Denver-based real estate investment trust, which was announced in April, included its 71 million-square-foot operating portfolio.

Phil Hawkins, current CEO of DCT (NYSE: DCT) and soon-to-be board member at Prologis (NYSE: PLD), spoke to Denver Business Journal about the evolution of the company during his 12-year tenure - and how the company became an unsuspecting acquisition target.

Early days: The plan to go public

Hawkins moved to Denver in 2006 after DCT executive Tom Wattles offered him the position of CEO.

Hawkins and other company leaders established three goals for growth.

First, he wanted to transform the company from 'nothing but a collection of assets' to a higher-growth portfolio that would stand the test of time for a longer period.

Secondly, the locations and markets had to be valuable, not just the buildings or their primary lease.

Third was the completion of a successful public offering to raise capital and complete goals one and two.

Hawkins led the company through its public offering in 2006 and it raised $199.7 million.

Post-IPO growth

Soon after the IPO, the economic downturn started, but Hawkins said it actually helped the company. Some 'amazing people' were available to hire, due to lay-offs or moves from struggling and idle companies.

At the time, the company had three offices and a 'couple dozen' people, Hawkins said. Hiring local teams was important so they wouldn't be perceived as a Denver-based company flying in.

In addition to employees, the company was able to acquire assets and land from coastal markets due to the downturn. Staying in the United States and purchasing stronger assets in those markets was part of the strategy.

Eventually, the company reduced its footprint from about 34 markets down to 13 focused markets.

With the plan in place, DCT was ready to go on the offense.

But what wasn't in those plans was an outright sale.

And then, an offer

Hawkins said that there was no pressure, from his vantage point, to sell.

But, he said his priority was advancing the shareholders' interests.

'If anybody ever has an idea that advances those that involves the company, we'll listen.'

Periodically, Hawkins said DCT would get inquiries from potential acquirers, but no offers interested company leaders enough to come to a deal.

Prologis, however, had a lot of overlap with DCT in how they positioned their portfolios - both as to businesses they pursued and the way they approached development, such as identifying in-fill locations in supply-constrained markets.

The biggest difference was the global presence of Prologis.

Five years ago, the two companies had an informal discussion about a merger, but DCT didn't find the proposal compelling. The two re-engaged in December, Hawkins said, but with the same result.

Prologis reappeared in March 2018, Hawkins said, and he thought the proposal was worthy of further discussion at the board level.

'It's amazing how fast these public company mergers happen,' he said. 'There's a lot of effort from a lot of people.'

The all-stock transaction allows stockholders the chance to sell their shares at an 'attractive price,' or hold stock in a company that's similar to DCT but much larger.

John Spiegleman, executive vice president and general counsel at DCT, said that the numbers speak for themselves: a 16 percent share premium after the merger and a 33 percent dividend premium.

'The joint firm is expected to be the largest publicly traded industrial REIT in the U.S., building a stronger footprint in key markets contemporaneous with potentially favorable shifts in demand for logistics facilities necessary to meet growth in e-commerce,' proxy advisory service Glass Lewis said in its recommendation of the merger.

The road ahead

Hawkins also spoke of the personal, emotional side of the merger. It wasn't easy for him.

The 'sweat, blood and tears' put into the company for 12 years made for a lot of tough goodbyes, despite his firm belief it was the right decision for shareholders.

More than 50 people will be laid off as a result of the merger. That's a significant amount for a company of about 100 people across 13 offices.

However, he said the company - he, team managers, and others - have been working hard to make sure employees have something lined up (if they want it) once the deal is closed.

It is expected to close shortly after the shareholder vote on August 20.

A 'couple dozen' employees will be going from DCT to Prologis, he said.

Hawkins will be on the board of Prologis. He's a trustee at Hamilton College and a member of the National Association of Real Estate Investment Trusts (NAREIT) - he also serves on their Board of Governors.

But, the longtime CEO said being on a board isn't the same as being engaged, or being a part of a company.

So, rather than retiring to a white sandy beach somewhere, or hitting the golf course, he's looking for his next leadership role.

'I'm telling people I'm not retired, I'm unemployed,' he said with a laugh.

He does, however, want to stay in Colorado.

'It took me most of my career to get here - I'm not going to give it up now.'